Today, Microsoft announced that it is acquiring professional networking platform LinkedIn, in a deal valued at around $26.2 billion. But why?
That's a good question - and it appears that even the company's shareholders aren't entirely clear on the answer, given that Microsoft shares fell by a hefty 5% immediately after the announcement today.
In an email to Microsoft employees today, the full text of which is appended to this article, CEO Satya Nadella explained what he looks for when considering a potential acquisition:
To start, I consider if an asset will expand our opportunity — specifically, does it expand our total addressable market? Is this asset riding secular usage and technology trends? And does this asset align with our core business and overall sense of purpose?
The answer to all of those questions with LinkedIn is squarely yes.
A major focus of the acquisition will be on connecting LinkedIn's 433 million users - and the network's massive database storing information on each of them - with its own cloud platform and productivity tools. Microsoft says that "by connecting the world's leading professional cloud and the professional network, we can create more connected, intelligent and productive experiences".
In a PDF overview of the acquisition, Microsoft outlines numerous scenarios through which that integration will drive growth both for LinkedIn - which will remain an independent business entity under its current CEO, Jeff Weiner - and its own products and tools, such as Office 365 and Dynamics. It also highlights these key opportunities:
- LinkedIn can utilize Microsoft's field and distribution channels to reach new audiences and more customers
- Access to Microsoft's scaled cloud infrastructure and technology stack
- Increased Bing engagement with the best professional search
- LinkedIn feed with Windows notifications
- Empower developers in new ways with rich APIs
One key benefit highlighted is that of connecting Microsoft's digital assistant Cortana - which is deeply integrated into Windows 10, as well as being available on other platforms - with LinkedIn.
"In the future," Microsoft says, "Cortana will also know your entire professional network to connect dots on your behalf so you stay one step ahead."
Microsoft also sees values in some of LinkedIn's product portfolio, such as its Lynda.com learning resources. Microsoft says that it will deeply integrate Lynda.com into its Office products, "enabling users to have more seamless experience and access to on-demand courses". The company believes that exposing these resources to the massive global user base of the Office suite will be transformative in connecting users to the skills they need to grow throughout their careers, while also helping to drive its own revenue growth.
Similarly, it says that organizations will gain a greater understanding of their human resources and available talent, enabling them to recruit more efficiently, and train their existing teams to fill in skill gaps as needed.
"Today, there is no one source of truth for an individual profile," Microsoft explains. "The data is scattered across many endpoints often with outdated or incomplete information. In the future, a professional's profile will be unified and the right data at the right time will surface in an app, whether Outlook, Skype, Office or elsewhere."
In a video in which he appeared with Weiner, Nadella further explained why he believes the acquisition makes sense:
As I thought about it more - in terms of 'what is it that is most needed in today's world?' - for sure, I'm a deep believer in productivity tools and communication tools, because that's what empowers people to be able to be able to be great their job.
But think about taking that, and connecting it with a professional network, and really having that entirety of what is your professional life be enhanced, more empowered, where you're acquiring new skills and being more successful in your current job, and finding a greater, bigger next job - that's that vision, and I've been talking with Reid [Hoffman, LinkedIn chairman] and Jeff for a while, and the fact that it came together now is fantastic - but believe me, I've been thinking about this for a long time.
Of course, the challenge of delivering on that vision will be undeniably massive - and Microsoft's largest and highest-profile acquisitions haven't always been a success.
Its $7.2 billion purchase of Nokia's devices and services business in 2014 was a disaster that cost the company dearly. Its $8.5 billion acquisition of Skype has been a mixed bag; its efforts to build Skype as a business offering to replace Lync are ongoing, and it's not yet clear how Skype for Business and LinkedIn will co-exist with the Yammer enterprise collaboration tool, another Microsoft acquisition.
Time will tell if Microsoft can successfully integrate LinkedIn with its own operations as it hopes - but from today's announcement, it sounds a lot like Weiner will be leading the way in deciding how best to do so. Nadella said that he has directed Weiner "to managed LinkedIn with key performance metrics that accrue to our overall success", but emphasized that it will be the LinkedIn CEO who will "decide what makes sense to integrate and what does not".
But if they successfully execute on their shared vision, it could strengthen Microsoft's product offering considerably, and help to establish it as the dominant force in professional networking, collaboration and global productivity.
Satya Nadella's email to Microsoft staff re: LinkedIn acquisition
This deal brings together the world’s leading professional cloud with the world’s leading professional network. I have been learning about LinkedIn for some time while also reflecting on how networks can truly differentiate cloud services. It’s clear to me that the LinkedIn team has grown a fantastic business and an impressive network of more than 433 million professionals.
Given this is the biggest acquisition for Microsoft since I became CEO, I wanted to share with you how I think about acquisitions overall. To start, I consider if an asset will expand our opportunity — specifically, does it expand our total addressable market? Is this asset riding secular usage and technology trends? And does this asset align with our core business and overall sense of purpose?
The answer to all of those questions with LinkedIn is squarely yes. We are in pursuit of a common mission centered on empowering people and organizations. Along with the new growth in our Office 365 commercial and Dynamics businesses this deal is key to our bold ambition to reinvent productivity and business processes. Think about it: How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world. It requires a vibrant network that brings together a professional’s information in LinkedIn’s public network with the information in Office 365 and Dynamics. This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete. As these experiences get more intelligent and delightful, the LinkedIn and Office 365 engagement will grow. And in turn, new opportunities will be created for monetization through individual and organization subscriptions and targeted advertising.
Jeff and I both believe we have a significant opportunity to accelerate LinkedIn’s growth and the value it brings to its members with Microsoft’s assets and scale. In fact, when Reid Hoffman, the founder of LinkedIn, and I spoke about the opportunity for us to come together, he called it a “re-founding” moment for LinkedIn and an opportunity to reach the mission the company set out on 13 years ago.
The opportunity for Office 365 and Dynamics is just as profound. Over the past decade we have moved Office from a set of productivity tools to a cloud service across any platform and device. This deal is the next step forward for Office 365 and Dynamics as they connect to the world’s largest and most valuable professional network. In essence, we can reinvent ways to make professionals more productive while at the same time reinventing selling, marketing and talent management business processes. I can’t wait to see what our teams dream up when we can begin working together once the deal closes, which we expect will happen this calendar year.
A big part of this deal is accelerating LinkedIn’s growth. To that end, LinkedIn will retain its distinct brand and independence, as well as their culture which is very much aligned with ours. Jeff will continue to be CEO of LinkedIn, he’ll report to me and join our senior leadership team. In essence, what I’ve asked Jeff to do is manage LinkedIn with key performance metrics that accrue to our overall success. He’ll decide from there what makes sense to integrate and what does not. We know that near term there will be no changes in who reports to whom so no reporting relationships at Microsoft will change in that regard. This approach is designed to keep the LinkedIn team focused on driving results while simultaneously partnering on product integration plans with the Office 365 and Dynamics teams. During the integration, we’ll pick key projects where we can go deep together that will ultimately result in new experiences for customers. Kurt DelBene will lead the overall integration efforts at Microsoft in close partnership with Qi Lu and Scott Guthrie.
I’m on the LinkedIn campus today in California and will host a call for investors at 8:45 a.m. PT with Jeff, Brad and Amy – please join if you can. Following that, I’ll then spend the day meeting with the LinkedIn team. Tomorrow, I’ll host a special Microsoft employee Q&A – I hope you can make it.
So far, what I’ve learned about the LinkedIn team is how much our cultures share many of the same attributes. We both care deeply about individual and collective growth, and find deep meaning in the work we do to make a difference in our world. Together we’ll do just that.
While I’m in northern California sharing our vision to empower professionals, the Xbox team is in southern California at E3 sharing our vision to empower gamers. I encourage you to check out the E3 press briefing, which starts at 9:30 a.m. Pacific Time.
Finally, if you’re not on LinkedIn, join up now and start using and learning more.